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When Philip Hammond inherited the title of chancellor of the exchequer from George Osborne, he was given the task of dealing with the financial fallout of the Brexit vote, which had seen the pound plummet to its lowest levels since the 1980s. Since then he’s been charged with balancing the country’s finances while the cabinet attempts to negotiate the bumpy road leading toward the triggering Article 50. So while the stakes are usually high in the run up to any autumn statement, Hammond’s first was always fated to have an unusually large impact on both the country and its startups for years to come.
However, few people predicted just how momentous this year’s speech would be until Hammond declared that this would not only be his first autumn statement, it would also be his last. Elaborating, the chancellor announced that he was abolishing what has effectively become a biannual budget. “No other major economy makes hundreds of tax changes twice a year and neither should we,” he said. Instead, the UK will next year begin having an autumn budget and, as of 2018, replace the March budget with a smaller scale spring statement.
And this wasn’t the only shock Hammond had in store. The chancellor also revealed that the Brexit vote in June has caused GDP growth to be 2.4% lower than it would have otherwise have been. The gloomy economic outlook darkened as Hammond revealed that in 2016 tax revenues have been lower than expected while public spending has increased. This means that over 90% of GDP in next year will consist of debt.
While this gloomy outlook may be disheartening, Hammond did unveil several initiatives aimed at ensuring that the UK remains at the forefront of innovation. Following from May’s announcement earlier this week, the chancellor confirmed that the government’s annual investment in technological innovation will rise to £2bn per year by 2020.
He also unveiled a £1bn investment to make the UK “a world leader in 5G” and the introduction of a 100% business rate relief for a five-year period on new fibre infrastructure across the country. Certainly this has received praise from those working in the sector: Matt Clifford, MBE, co-founder and CEO at Entrepreneur First, the accelerator, believes investments will be positive for tech startups as they will allow Britain to “cement its role as a leader in tech innovation.”
But those weren’t the only ways in which Hammond is intending to support British enterprises. In a bid to ensure that UK tech startups are able to scale rather than get “snapped up by bigger companies”, the chancellor also announced that the government would inject an additional “£400m into venture capital funds through the British Business Bank, unlocking £1bn of new finance for growing firms”.
Alex Macpherson, head of ventures at Octopus Ventures, the VC firm, welcomed the news. “Investment and support for the UK’s startups to become scaleup businesses is vital if the UK is to create the new breed of world-leading tech companies,” he said.
However, Roy Maugham, tax partner at UHY Hacker Young, the national accountancy group, didn’t seem quite as optimistic. “£400m of extra central government funding for VCs is welcome but it will not go that far or last that long,” he said. “Private capital is a crucial source of funding for UK startups and scaleups – enhancing existing venture capital schemes would be a permanent boost to UK startup culture.”
During his speech, Hammond pledged to raise the national living wage from £7.20 to £7.50 in April 2017, drawing praise from some quarters. “This is clearly a step in the right direction for society and business,” said Louise Boland, managing director at Opus Energy, the energy company.
However, not everyone shared her belief that raising the national living wage could help reduce staff turnover, close the gender pay gap and boost employee engagement. For instance, Claire Knowles, partner at Acuity Legal, the law firm specialising in entrepreneurialism, believes this will “hit small businesses and startups particularly hard” as they won’t be able to compete against bigger businesses that can offer higher salaries.
The chancellor also stood by his previous pledge to decrease corporation tax from 20% to 17% by 2020. While this may result in a welcome boost in profits for some companies, Martin Leuw, founder of Growth4Good, the accelerator investing in social businesses, said that this may not be the best way to boost innovation. “Strategically it makes more sense to target incentives to firms investing in technology through increases in R&D tax credits and capital allowances,” he said. “Great tech startups can attract capital anyway, so I struggle to see how government funding will stop early exits by our best businesses. What we really need is more talent not finance.”
Given the reactions to the autumn statement, it’s fair to say that the UK startup scene’s response was divided. However, we’re keeping our fingers crossed that the initiatives to boost UK startups will prove successful.